Two USDA reports fed the dairy market bears this week. Preliminary data in the December Milk Production report put output in the top 23 states at 15.7 billion pounds, up 800 million pounds from November and a hefty 1.7 percent above December 2011. The 50-state output, at 16.8 billion pounds, was up 1.6 percent. Revisions added 31 million pounds to the November data pushing output to 14.9 billion, up 1.3 percent from a year ago.

The preliminary 2012 50-state milk production total came to 200.3 billion pounds, up 4 billion pounds or 2.1 percent from 2011. Cow numbers averaged 9.23 million head, up 37,000. Output per cow averaged 21,697 pounds, up 352 pounds. December cow numbers in the 23 states stood at 8.49 million head, up 16,000 from November and 5,000 above a year ago. Output per cow averaged 1,848 pounds, up 30 from a year ago.

California output in December was down 2.3 percent due to a drop of 45 pounds per cow and 6,000 fewer cows. But Wisconsin was up 5.5 percent on a 90-pound gain per cow and 5,000 more cows. Idaho was up 1 percent on a 20-pound gain per cow though cow numbers were steady. New York was up 4.2 percent on a 75 gain per cow. Pennsylvania was up 1.2 percent thanks to a 35 pound gain per cow, but cow numbers dropped 5,000 head. Minnesota was up 4.4 percent, thanks to a 70 pound gain per cow. Declines in state output were small, the biggest occurring in California, but the gains were strong.

Kansas had the biggest increase, up 10 percent. Michigan was up 5.5 percent on a 70-pound gain per cow and 7,000 more cows. New Mexico was off 0.3 percent despite a 75 pound gain per cow but cow numbers were down 13,000. Texas was off 0.7 percent on a drop of 5 pounds per cow and 2,000 fewer cows.

USDA's Livestock Slaughter report showed an estimated 258,800 culled dairy cows were slaughtered under federal inspection in December, down 10,000 from November and 3,100 less than December 2011. The total 2012 dairy cow slaughter was estimated at 3.1 million head, up 187,500 from 2011 and the highest since 1986, the year USDA began differentiating dairy cow slaughter from total cow slaughter.

Cold storage

The bears fed off USDA's latest Cold Storage data which pegged Dec. 31 butter holdings at 152.9 million pounds, up 25.6 million pounds or 20 percent from November and a whopping 46 million or 43 percent above December 2012.

American cheese, at 604.9 million pounds, was up 4 percent from November but 1 percent below a year ago. The total cheese inventory, at 987.9 million pounds, was up 5 percent from November and unchanged from a year ago.

The cash block cheese price lost 4 1/4-cents in the shortened Martin Luther King Jr. Day holiday week, dipping to $1.6450 per pound, the lowest level since mid July 2012, but is still 13 1/2-cents above a year ago. The barrels closed Friday at $1.5725, down 6 1/2-cents on the week, 7 1/4 below the blocks, but 7 3/4-cents above a year ago. Four cars of block traded hands on the week and 10 of barrel. The AMS-surveyed U.S. average block price hit $1.7443, down a penny. The barrels averaged $1.7277, down 1.1 cent.

Cheese plants are busy with increasing milk supplies, according to USDA's Jan. 18 Dairy Market News, and some plants were adding schedules to take advantage of lower priced loads but lower cheese prices have increased buying interest for export. The USDA Foreign Agricultural Service reported cheese sales for January to November of 2012 totaled 527.2 million pounds, up 17 percent from 2011. Exports accounted for 5.3 percent of total production over the period.

Cash butter saw its Friday close at $1.5050, unchanged on the week, but 4 1/2-cents below a year ago. Four cars were sold on the week. AMS butter averaged $1.4789, down 4.4 cents. AMS powder averaged $1.5714, up 2.3 cents, and dry whey averaged 64.49 cents, down 1.2 cents.

Cream supplies are readily available, according to DMN. Manufacturers are responding by churning more butter than orders require and are content to inventory the butter. DMN reports: "Within this dynamic, some brokers are working to increase butter purchases to expand inventories for future domestic and export sales. There is some degree of confidence among manufacturers and brokers that butter at current prices will be profitable to hold for later in the year."

FAS reported exports of butter and milkfat, January to November 2012, totaled 99.5 million pounds, down 25 percent from a year ago. Those exports accounted for 5.9 percent of U.S. butter production for the year.

Cooperatives Working Together accepted 19 requests for export assistance this week to sell 3.814 million pounds of cheese and 2.423 million pounds of butter to customers in Asia, the Middle East and North Africa.

New Zealand worries

FC Stone's Jan. 24 eDairy Insider Opening Bell cited a story in the Wall Street Journal which reported that dicyandiamide, a product that farmers apply to pastures to reduce nitrate leaching and promote pasture growth, has been found in milk in New Zealand.

New Zealand media reported that two fertilizer companies recalled their products containing the active ingredient. New Zealand media also quoted Fonterra sources saying that the product does not present a food safety risk.

The New Zealand Ministry for Primary Industries issued a statement supporting the fertilizer companies' suspension of sales and said that in December it had set up a working group to assess the impact of residues found in food. A ministry official said, "There is no food safety concern associated with the use of DCD."

Global growth

The Jan. 18 Daily Dairy Report and the week's Daily Dairy Discussion pointed out that since 2008, milk production in the top-five exporting countries or regions of the world -- Argentina, Australia, the European Union-27, New Zealand and the U.S. -- has grown about 1.5 to 2 percent each year.

It warned that "this pace of growth, in tandem with higher growth rates in some developing countries, has culminated in a milk supply that has barely kept up with rising global demand for dairy products."

The U.S. Dairy Export Council reported this week that Chinese and U.S. regulators have "approved a dairy certificate ensuring that the flow of U.S. dairy goods into the largest dairy importer in the world continues unabated."

USDEC president Tom Suber said: "U.S. dairy exports to China are on pace to clear $400 million in 2012. With the certificate question settled, we expect U.S. dairy export value to China could more than double by 2017."

The issue dates back to early 2010 when China revised its dairy certificate as part of sweeping efforts to upgrade domestic food safety, according to USDEC.

The National Milk Producers Federation praised the resolution calling it a measure that "provides certainty to U.S. dairy exporters in order to enhance U.S.-China dairy trade," and NMPF praised Senate Majority Leader Harry Reid's decision this week to put the farm bill near the top of the list of things to do in 2013. A NMPF press release called it "good news for America's dairy farmers, who need leaders in the Senate and House to renew their push this year for a better farm bill."

Reid introduced the 2013 Farm Bill as Senate Bill 10, making it part of a short list of priority pieces of legislation for action in the Senate. The federation said Reid's decision "recognizes that the dairy policy reforms contained in the bill, along with other provisions in the measure, passed with overwhelming, bipartisan support last summer. The bill's Dairy Security Act will give farmers a better safety net while reducing taxpayer costs at a time when Congress is searching for ways to trim federal spending."

Milk slide

USDA reports that 4.5 billion pounds of packaged fluid milk products is estimated to have been sold in the U.S. in November, down a half-percent from November 2011. After adjusting for calendar composition, November sales were off 1.7 percent. Total conventional fluid product sales were off 0.9 percent while total organic fluid milk products increased 9 percent.

California

Following a 12-day delay the California Department of Food and Agriculture announced its February Class I milk prices January 22 at $19.83 per hundredweight for the north and $20.10 for the south. Both are down 41 cents from January but $1.31 above February 2012. That put the two-month average at $20.04 for the north and $20.31 for the south, both up 84 cents from a year ago.

CDFA stated on its website that class prices for the months February to May 2013 include temporary price increases resulting from the Dec. 21, 2012, public hearing. "In order to calculate class prices for these months the additional temporary increases are added to the corresponding per pound price of fat, solids not fat, and fluid carrier after all other calculations of the current formulas have been performed."

The International Dairy Foods Association's Jan. 23 SmartBrief cited an article from the Green Bay Press Gazette, which reports that sales of Wisconsin cheese could increase by $200 million if California increases the price of milk to make cheese. That's according to David Fuhrmann, CEO and president of Foremost Farms, Wisconsin's largest cheesemaker. "California cheesemakers currently pay less than Wisconsin cheesemakers do for milk, creating an uneven playing field, observers say."

MILC

DairyBusiness Update reports that the USDA Farm Service Agency released additional information regarding the Milk Income Loss Contract, promising a "start month" relief period for dairy farmers producing more milk than the MILC payment cap of 2.985 million pounds per year. The length of the relief period will be announced later, according to a notice sent to state and county FSA offices on Jan. 24.

Many of the details in the notice were already anticipated. Under the American Taxpayer Relief Act of 2012, signed into law by President Barack Obama on Jan. 2, virtually all dates regarding MILC payment calculations, price triggers and adjusters and payment caps were changed from "2012" to "2013".

As a result of legislative changes, retroactive MILC payments were triggered for September and October 2012. The September 2012 payment is 59.44 cents per hundredweight The October payment is 2.37 cents.

However, with the low October 2012 payment, the first month of fiscal 2013, of just over 2 cents per hundredweight, most larger producers would not have chosen to keep October as their "start month," especially with MILC payments forecast to be higher in 2013. Because producers were not able to make timely "start month" selections for fiscal year 2013, FSA will authorize a "relief period" (to be announced), allowing MILC participants to select any "start month" month in fiscal 2013.

DBU also reported that the book on the "Southeast Milk" class action antitrust lawsuit may finally be reaching its final chapter. On Jan. 21, the day before the trial was begin, a $158.6 million settlement agreement was reached between lawyers representing dairy farmer plaintiffs and remaining defendants in the suit Dairy Farmers of America; Mid-Am Capital LLC; National Dairy Holdings LP; and Gary Hanman, the former DFA CEO.

The U.S. District Court for the Eastern District of Tennessee approved the settlement on Jan. 22. According to the agreement, defendants will pay $140 million in a one-time cash settlement. Of that total, DFA will pay $70 million; $50 million will be paid by National Dairy Holdings, which DFA sold to Grupo LaLa in 2009; and $20 million will be paid by Mid-Am Capital, DFA's finance subsidiary. It was unclear whether Hanman will be required to make personal payments. DFA admitted no wrongdoing in agreeing to the settlement, according to DBU.

An additional $9.3 million per year for two years will be placed in a fund to guarantee stronger Class I (fluid milk) utilization in Appalachian (No. 5) and Southeast (No. 7) federal orders. A "fairness hearing" on the settlement is scheduled for April 3, at which time dairy farmers can speak on the agreement, according to DBU.